Famous market technician, trader and author Larry Williams has many written many
popular books on the subject of trading and has created many technical indicators.
In his search for the holy grail of trading indicators he discovered that most technical
indicators and oscillators typically ran into problems when they were used to analyse
market data from different time frames. To overcome this issue, William created
what he called the Ultimate Oscillator. The Ultimate Oscillator is an indicator
that combines three oscillators which represent short, intermediate, and long term
market cycles into one indicator.
Williams developed the Ultimate Oscillator based on the idea that buying or selling
will determine direction of prices. Buying pressure is measured by where a day's
closing price is within the day's true range. The Ultimate Oscillator can gauge
the true of strength of a market advance i.e. buying pressure. When buying pressure
is strong the Ultimate Oscillator rises and when buying pressure is weak the Ultimate
The first step in calculating the Ultimate Oscillator is to calculate what Williams
called was Buying Pressure (BP):
BP is calculated to determine the overall direction of prices. Buying pressure is
defined as the amount by which the close is above the true low on a given day. The
true low is defined as the lesser of the given day's trading low and the previous
The second step is to calculate the true range (TR):
True range is defined as the difference between the true high and the true low.
The true high is defined as the greater of the given day's trading high and the
The third step is to create averages based on the three timeframes involved (7,
14, and 28):
The fourth step is to create a weighted average of the three averages: